Is the Path to Retirement Just Pure Luck? (Part II)

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jpg” alt=”” width=”300″ height=”240″ />Last week I highlighted some fairly positive news from a recent Wells Fargo/Gallup survey even though the media headlines appeared otherwise. Despite low interest rates on investments, more people than not are confident they will be able to

retire when they plan to. And the majority of current retirees are confident they will be able to maintain their current standard of living while not outliving their money.

There is some cause for concern, however. Feeling confident about doing something and actually doing it are two different things. The problem with confidence is, without a real assessment of one’s means, ability and initiative, it is often mixed with delusion. I could feel confident about pursuing a second career as a professional basketball player but it will never happen since I lack the ability, means and the initiative it would take (not to mention, I am vertically challenged).

So back to the survey. Low int

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erest rates remain a concern for both nonretirees and retirees, but not enough to change their behavior of most:

  • 22 percent of nonretirees and 43 percent of retirees believe that low interest rates hurt savers and investors and that the costs outweigh the benefits.
  • However, only 26 percent of nonretirees and 19 percent of retirees would consider putting their money into investments they might “otherwise avoid.”
  • 70 percent of nonretirees and three-fourths of retirees would not “take more overall investment risk” than they would if interest rates were higher.

In other words, although most one-year CDs returning less than 1 percent annually, savers and investors prefer to play it safe or go with what they know. Without knowing from the survey exactly how each respondent invests (although the respondents were heads of households or spouses with at least $10,000 in savings and investments), sticking with what is familiar can be good, if it works. But knowing all there is to know about CDs, who has the best rates, how to ladder them, etc. and

feeling confident doesn’t help much when inflation comes knocking at the door.

Today’s preparation for retirement often involves stepping outside of one’s comfort zone, going from “I’ve always done it this way,” to “It’s time to look at other investment options.” This is especially true for nonretirees who are at least a decade away from retiring. Confidence is fine, but combined with initiative, ability and means, it is the only way to retire.

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Comments (4)

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  1. David says:

    The demographic that should be most concerned with their retirement prospects are the young progenies of the baby-boomer generation. Within the next couple of decades, a large portion of our population will retire and become unproductive, thus putting incredible pressure on their offspring to carry large amounts of ‘dead-weight’ in the economy. They will contribute heavily to programs like social security that may be flat broke by the time they are looking to take checks. And with the growing fiscal irresponsibility and insolvency of our government, who’s to say that when Uncle Sam reaches a breaking point, he won’t reach out and grab his ‘fair share’ of private savings too (we’ve already seen this happen in Greece).

  2. Big Daddy says:

    @David:

    You’re right on. As evidenced by the new EXPATRIOT act proposal, the federal gov’t has already recognized its precarious situation–an unfriendly economic environment coupled with large amounts of instability and fiscal debt. This proposal is essentially an attempt to eliminate worldwide competition in capital markets while tightening the fed’s grasp on as much money as possible. It’s basically equivalent to the gov’t saying, “So our taxes and econonmic freedoms suck, and we know we can’t compete with other countries, so we’re gonna force you to stick with us”.

  3. Joe Barnett says:

    They also did this in Argentina, basically stealing private pension funds.

  4. Antonio says:

    Look at what your alternatives are. You have studnet loans and a mortgage. Depending on your salary, both of those types of interest could be tax deductible. So the actual interest rate that you’re paying may be a little less. When you pay off a loan faster, you get a guaranteed return, it is the after-tax interest rate of the loan. The question is, will you make a better return investing in a retirement account. If you are investing in a diversified stock fund, you can expect to make somewhere in the 8-10% a year range over the long-term. And the investment grows tax-deferred (which means you don’t have to pay taxes on it until you take the money out in retirement). Assuming that your mortgage and studnet loans are somewhere in the 6-7% range, I would pay them off at the normal rate, and put money into your retirement account. The money that you put in now will have a long time to grow using the power of compounding interest, and you will in essence be earning’ a couple of extra percentage points over paying off your other debit early.References :